Investments in Real Estate

We acquire land, buildings and improvements necessary for the successful operations of commercial tenants.

A.Acquisitions During the First Three Months of 2019 and 2018

During the first three months of 2019, we invested $519.5 million in 105 new properties and properties under development or expansion with an initial weighted average contractual lease rate of 6.7%. The 105 new properties and properties under development or expansion are located in 25 states, will contain approximately 2.3 million leasable square feet, and are 100% leased with a weighted average lease term of 17.0 years. The tenants occupying the new properties operate in 14 industries and the property types consist of 98.7% retail and 1.3% industrial, based on rental revenue. None of our investments during 2019 caused any one tenant to be 10% or more of our total assets at March 31, 2019.

The $519.5 million invested during the first three months of 2019 was allocated as follows: $119.2 million to land, $345.3 million to buildings and improvements, $37.4 million to intangible assets related to leases, $22.6 million to financing receivables related to certain leases with off-market terms, and $5.0 million to intangible liabilities related to below-market leases. There was no contingent consideration associated with these acquisitions.

The properties acquired during the first three months of 2019 generated total revenues of $3.5 million and net income of $1.8 million during the three months ended March 31, 2019.

In comparison, during the first three months of 2018, we invested $509.8 million in 174 new properties and properties under development or expansion with an initial weighted average contractual lease rate of 6.2%. The 174 new properties and properties under development or expansion were located in 27 states, contained approximately 954,000 leasable square feet, and were 100% leased with a weighted average lease term of 14.0 years. The tenants occupying the new properties operated in 12 industries and were 100.0% retail properties, based on rental revenue.

The $509.8 million invested during the first three months of 2018 was allocated as follows: $209.6 million to land, $255.4 million to buildings and improvements, $57.6 million to intangible assets related to leases, and $12.8 million to intangible liabilities related to below-market leases. There was no contingent consideration associated with these acquisitions.

The properties acquired during the first three months of 2018 generated total revenues of $296,000 and a net loss of $215,000 during the three months ended March 31, 2018.

The initial weighted average contractual lease rate for a property is generally computed as estimated contractual first year cash net operating income, which, in the case of a net leased property, is equal to the aggregate base rent for the first full year of each lease, divided by the total cost of the property. Since it is possible that a tenant could default on the payment of contractual rent, we cannot provide assurance that the actual return on the funds invested will remain at the percentages listed above.

In the case of a property under development or expansion, the contractual lease rate is generally fixed such that rent varies based on the actual total investment in order to provide a fixed rate of return. When the lease does not provide for a fixed rate of return on a property under development or expansion, the initial weighted average contractual lease rate is computed as follows: estimated cash net operating income (determined by the lease) for the first full year of each lease, divided by our projected total investment in the property, including land, construction and capitalized interest costs. Of the $519.5 million we invested during the first three months of 2019, $10.9 million was invested in eight properties under development or expansion with an initial weighted average contractual lease rate of 7.2%. Of the $509.8 million we invested during the first three months of 2018, $3.8 million was invested in six properties under development or expansion with an initial weighted average contractual lease rate of 6.7%.

B.Investments in Existing Properties

During the first three months of 2019, we capitalized costs of $3.0 million on existing properties in our portfolio, consisting of $323,000 for re-leasing costs, $56,000 for recurring capital expenditures and $2.6 million for non-recurring building improvements. In comparison, during the first three months of 2018, we capitalized costs of $3.2 million on existing properties in our portfolio, consisting of $917,000 for re-leasing costs, $11,000 for recurring capital expenditures and $2.3 million for non-recurring building improvements.

C.Properties with Existing Leases

Of the $519.5 million we invested during the first three months of 2019, approximately $258.0 million was used to acquire 53 properties with existing leases. In comparison, of the $509.8 million we invested during the first three months of 2018, approximately $110.4 million was used to acquire 53 properties with existing leases. The value of the in-place and above-market leases is recorded to lease intangible assets, net on our consolidated balance sheets, and the value of the below-market leases is recorded to lease intangible liabilities, net on our consolidated balance sheets.

The values of the in-place leases are amortized as depreciation and amortization expense. The amounts amortized to expense for all of our in-place leases, for the first three months of 2019 and 2018 were $26.0 million and $26.4 million, respectively.

The values of the above-market and below-market leases are amortized over the term of the respective leases, including any bargain renewal options, as an adjustment to rental revenue on our consolidated statements of income and comprehensive income. The amounts amortized as a net decrease to rental revenue for capitalized above-market and below-market leases for the first three months of 2019 and 2018 were $3.4 million and $3.9 million, respectively. If a lease was to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recorded to revenue or expense, as appropriate.

The following table presents the estimated impact during the next five years and thereafter related to the amortization of the above-market and below-market lease intangibles and the amortization of the in-place lease intangibles at March 31, 2019 (in thousands):



	Net decrease to rental revenue			Increase to amortization expense
2019	$	(13,265	)	$	75,439
2020	(17,029		)	95,907
2021	(15,832		)	87,742
2022	(14,129		)	76,138
2023	(12,715		)	65,812
Thereafter	(36,950		)	382,858
Totals	$	(109,920	)	$	783,896